JK Paper — Q1 FY23 earnings call

Call held 2 Aug 2022

Management summary

JK Paper reported a strong Q1 FY23 with turnover more than doubling, driven by 82% volumetric growth and 20% higher realizations. PAT surged by nearly 150% year-on-year, supported by efficient plant operations, including high utilization of new capacities, and lower finance costs. The company successfully passed on increased raw material and energy costs due to robust demand, maintaining strong margins. Management expressed confidence in sustained demand and further debt reduction.

Highlights

  • Turnover more than doubled in Q1 FY23.

  • Volumetric growth was approximately 82% year-on-year.

  • Price realization and mix change contributed around +20% to turnover.

  • Profit After Tax (PAT) increased by close to 150% year-on-year.

  • Average Net Sales Realization (NSR) was ₹75,000 per ton, up from ₹62,000 in the previous year's same period.

  • Achieved 90% utilization for the new packaging board machine and nearly 100% for the new pulp mill at the Gujarat facility.

  • Net debt target of ₹2,000 crores by March 2023 was already achieved in Q1 FY23.

  • Expects annual debt repayment to be ₹325-350 crores, rising to ₹400 crores by FY23-24.

Key financials

  1. Revenue Growth 100% +100%YoY
  2. PAT Growth 150% +150%YoY
  3. Average NSR ₹75,000/ton +21%YoY
  4. Consolidated Debt ₹3,035 Cr
  5. Cash Equivalent ₹918 Cr
  6. Volumetric Growth 82% +82%YoY

What they filed

Q1 FY27: revenue up 6.3%, net profit up 48.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,424 1,390 1,652 1,600 1,421 −0%1,560 +12%1,807 +9%1,700 +6%
EBITDA222 140 199 226 165 −26%133 −5%226 +14%235 +4%
Net profit121 61 74 76 57 −53%15 −75%83 +12%113 +49%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Debt

  • Net Debt Debt · by March '23 (achieved in Q1 FY23) · High confidence ₹2,000 crores
    Last year when I was making comment on this net debt, I said that by end of March '23 our target is to reduce the net debt by 2,000 crores I mean to 2,000 crores but I think now we are already achieved this in this quarter.

    — A.S. Mehta

  • Annual Debt Repayment Debt · FY23 · High confidence ₹325-350 crores
    It will be close to Rs. 325 to 350 crores kind of repayment because new line is also getting repaid, starting repayment.

    — Ashok Gupta

  • Annual Debt Repayment Debt · FY23-24 · High confidence ₹400 crores
    So, which will go up to Rs. 400 crores by '23-24 only.

    — Ashok Gupta

Volume

  • Volume increase from debottlenecking Volume · Annually · Medium confidence 2%-4%
    No, that will always continue and as you have seen that every year without any major CAPEX 2%-3%-4% volume we may increase from our existing facilities and that's the only debottlenecking so that will continue.

    — A.S. Mehta

Capacity

  • Total Capacity Utilization Capacity · next year · High confidence 8 lakh tons
    No of course our aspiration is to do 8 lakh tons next year. Yes.

    — A.S. Mehta

Capex

  • Additional CAPEX for volume Capex · next 2-3 years · High confidence No additional CAPEX
    There's no need of putting a CAPEX. Please understand and appreciate that only last year we put about Rs. 2000 crores of CAPEX and also something at around 50 to 60 crores at the Sirpur Paper Mill, so no question of any additional CAPEX for at least 2-3 year for the volume.

    — A.S. Mehta

Export Volume

  • Export Volume Contribution Export Volume · coming months · Medium confidence 5%-8%

    Previously 8%-10% → 5%-8%

    Going forward also in coming months we may restrict it to 5% to 8% because the domestic market is fairly strong.

    — A.S. Mehta

Risks & concerns

  • Energy Cost Volatility

    medium

    Energy prices have been very high in Q1, and no respite is foreseen for the current quarter, with potential relief only thereafter.

    Management acknowledged

  • Global Pulp/Paper Price Cycles

    medium

    NSR sustainability depends on global pulp/paper and energy prices remaining at their current levels.

    Management acknowledged

  • Import Competition/Dumping

    low

    Currently, only a very small quantity of imports is observed, as domestic prices are largely at par with international rates, and an import monitoring mechanism will be in place from October 1st.

    Management downplayed

Areas of evasion (3)

  • accumulated business losses number
  • specific breakdown of hard/soft BCTMP usage
  • pricing of brown paper/kraft paper

Q&A highlights

3 direct
Sustainability of margins and future margin improvement. Direct
If you are able to maintain this that would be very healthy. In fact, I don't foresee a major or further improvement in the margin but the top line improvement and also the volume improvement per se should give us absolute increase in the operating profit as well as the net profit.

Management clarifies that while current margins are healthy, significant further expansion is not expected, but absolute profits will grow with volume and top-line.

Asked by Harsh Shah

Impact of import dumping and coal availability. Direct
very small quantity is coming as import in the country right now because the domestic prices and international prices are more or less at par. The people are finding no reason to import sizeable quantity... from 1st of October the import monitoring mechanism will be in place by Government of India.

Addresses a key sector risk (imports) and provides comfort on the current situation and future government measures, also updates on coal sourcing.

Asked by Deepak Lalwani

Future growth segments beyond traditional paper/board and entry into the corrugated market. Direct
In fact, that is the reason we have already entered into the business of corrugation through wholly owned subsidiary and the first plant is being put up in Ludhiana and in this fiscal year itself we will start production there.

Reveals the company's strategic move into a new, growing segment (corrugation) for future diversification and growth, indicating a long-term vision.

Asked by Rajesh

2 min read 6 chapters

Detailed narrative

Strong Q1 FY23 Performance Driven by Volume and Realization

JK Paper reported a robust Q1 FY23, with turnover more than doubling year-on-year. This significant growth was primarily fueled by an 82% increase in volumetric sales and a 20% improvement in price realization and product mix. The company's Profit After Tax (PAT) surged by approximately 150% compared to the previous year's corresponding quarter, benefiting from efficient plant operations and lower finance costs.

Healthy Margins Maintained Amidst Cost Headwinds

Despite rising raw material costs, including pulp, commodities, chemicals, and high energy prices, JK Paper successfully maintained and slightly improved its operating margins. The average Net Sales Realization (NSR) for Q1 FY23 stood at ₹75,000 per ton, a notable increase from ₹62,000 per ton in Q1 FY22, demonstrating strong pricing power in a robust demand environment. Management indicated that while further significant margin expansion is not anticipated from the current 30%+ levels, absolute operating and net profits are expected to grow with increasing top-line and volumes.

High Capacity Utilization and New Plant Ramp-Up

The company achieved strong operational efficiency across its facilities. The new packaging board line at the Gujarat facility reached 90% utilization, with the new pulp mill operating at nearly 100%. The Sirpur facility operated at 80%-85% capacity, with scope to increase to 90%-95%. The Odisha plant underwent a planned 10-day annual shutdown in Q1, which is not expected in Q2, contributing to higher anticipated volumes in the coming quarter.

Accelerated Debt Reduction and Prudent Capex Strategy

JK Paper has made significant progress in debt reduction, achieving its target of reducing net debt to ₹2,000 crores by March 2023 already in Q1 FY23. The company projects annual debt repayments of ₹325-350 crores for FY23, increasing to ₹400 crores by FY23-24. Management confirmed no major additional CAPEX for volume expansion is planned for the next 2-3 years, focusing instead on fully utilizing existing capacities and ongoing debottlenecking efforts that could add 2%-4% volume annually.

Positive Demand Outlook and Strategic Diversification

The demand outlook remains strong across all paper categories, including writing, printing, and packaging boards, driven by new education policies, increased office work, and growth in FMCG, pharma, and food sectors. The company's new packaging board capacity has been fully absorbed. Strategically, JK Paper has entered the corrugation business through a wholly-owned subsidiary, with the first plant in Ludhiana expected to commence production this fiscal year, marking a new avenue for future growth and diversification.

Limited Import Competition and Government Support

Management noted that import competition is currently minimal, with domestic prices largely at par with international rates, making large-scale imports unattractive. Furthermore, an import monitoring mechanism is set to be implemented by the Government of India from October 1st, which is expected to further support the domestic paper industry. The company's export volume, currently 8%-10%, may be restricted to 5%-8% in coming months due to strong domestic demand.

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